Credit Card: can I use it to buy Cryptocurrency?
There has been no shortage of excitement in cryptocurrency markets in recent months, with many new investors eager to get involved.
Buying a small amount of Bitcoin or Ethereum, on the other hand, necessitates extensive research beforehand, including what type of cryptocurrency you want to buy, the most secure exchanges to use, and even how you'll make the purchase.
Because crypto transactions are conducted online, you may wish to use your credit card, as you would for many other online purchases, to ensure the transaction's security.
Buying cryptocurrency with a credit card is possible, but it is a risky financial venture. In fact, it's expensive, and it can increase the risk you're already taking by including a volatile crypto asset in your portfolio.
Is it possible to purchase cryptocurrency with a Credit Card?
It is sometimes possible to buy cryptocurrency with a credit card, but this is dependent on both the cryptocurrency exchange and your credit card issuer
First, you'll need to locate a cryptocurrency exchange. This is a platform that, like a stock exchange, facilitates the purchase and sale of cryptocurrency. You'll also need a credit card-accepting exchange, such as Coinmama, CEX.io, or Paxful.
However, many popular exchanges, such as Coinbase and Gemini, do not accept credit card purchases at all.
Furthermore, cryptocurrency exchanges that do accept credit cards will charge you a fee for the privilege, which can be 3% or more of your transaction. Fees are also frequently higher than those charged by other methods of payment, such as ACH bank transfers.
Obviously, even if you are willing to pay the exchange fees in order to use your card, your credit card issuer may still be a problem.
The majority of the largest credit card companies have outright prohibited cryptocurrency purchases.
How does purchasing cryptocurrency with a Credit Card work?
The actual process of purchasing cryptocurrency with a credit card is similar to that of any other online purchase.
- Find a credit card issuer that will allow you to buy cryptocurrency.
- Locate a cryptocurrency exchange that accepts credit card payments.
- Purchase your cryptocurrency.
As previously stated, the most difficult part will most likely be locating a credit card issuer and a cryptocurrency exchange that accept such transactions.
You can make your purchase once you've decided on a credit card and a cryptocurrency exchange. The precise procedure will vary depending on the platform.
In general, you'll start by signing up for the exchange. Then you can choose the currency and amount you want to buy, as well as tell the exchange where to send your money. Finally, you'll enter your credit card details and complete the transaction.
Because any card that allows you to buy cryptocurrency will almost certainly treat it as a cash advance, make sure to pay off your purchase as soon as it clears. This reduces the amount of credit card interest you must pay on your purchase
Why do banks block Credit Card transactions?
There are three key reasons why card issuers could block crypto purchases:
Cryptocurrency stocks are extremely risky as a result of this volatility, and banks are notoriously risk-averse. They will not allow you to make risky purchases with your credit line, also known as "their money."
- INADEQUATE REGULATION
- CASH EQUIVALENT
All of this means that you'll have to search hard for a credit card company that doesn't completely block cryptocurrency purchases. And if you're lucky enough to find an issuer that can be used to buy crypto, you'll have to pay for it again.
CASH ADVANCE FEESAs previously stated, cryptocurrency purchases are treated as cash-equivalent transactions that qualify for a credit card cash advance.
In addition to the credit card fee charged by the exchange, you will almost certainly be charged a cash advance fee, which can range from 3% to 5% per transaction.
FOREIGN TRANSACTION FEES
What's more, if you buy crypto with USD using a credit card on a platform based outside the US, you will most likely be charged a foreign transaction fee. This scenario also applies to users who have domestic credit cards but are purchasing cryptocurrency with other fiat currencies.
Typical foreign transaction fees are around 3% of the transaction amount. For example, if you bought $1,000 in cryptocurrency, you would be charged $30.
What are the Benefits of buying Crypto with a Credit Card?
- INVEST WITHOUT ACCESS TO CASH
- RAPID AND IMMEDIATE
- EARN POTENTIAL REWARDS
What are the Drawbacks of buying Crypto with a Credit Card?
- CREDIT CARD INFORMATION AT RISK
However, many of these exchanges are scams designed to take advantage of newcomers or users looking to make a quick buck.
While credit cards have strong fraud protection, every user should be able to recognize and avoid a scam.
- CREDIT SCORE IMPACTED
To summarize, while purchasing cryptocurrency with a credit card is a viable option, that doesn't mean it is a wise decision. The truth is that the value of cryptocurrency fluctuates over time, but you will always owe whatever you charge to your credit card, including interest and transaction fees.
If you want to build wealth through cryptocurrency, you should probably save up some money first. While paying for cryptocurrency with a credit card is convenient, the additional costs make this option prohibitively expensive and risky for the average consumer.